by Hari Prasad Shrestha 18 January 2024
During the recent Nepal visit of Indian External Minister S. Jayashanker, to attend Joint Commission (JC) meeting, Nepal and India signed a power purchase agreement, India will purchase 10,000 megawatts of electricity from Nepal within the next 10 years. After the meeting, the Ministry of Foreign Affairs of Nepal in a Press Release stated that during the meeting of the Joint Commission, the two sides reviewed all aspects of bilateral relations as well as areas of cooperation including connectivity, infrastructure development, economic partnership, trade, transit, investment, power, water resources, culture, tourism, sports, health and education. Furthermore, it mentioned about the issues of additional air entry routes, floods and inundation and views were also exchanged on the review of Treaty of Peace and Friendship of 1950, security and boundary related matters.
Besides a long-term power trade agreement, other agreements and MOUs include support for community development projects, the launch of a satellite made by Nepal and support for the development of renewable energy in Nepal. Despite public concerns and controversies, Nepal agreed with India under community development projects by allowing it to provide direct grants to projects worth up to Rs 200 million in Nepal to support provinces and localities. The question arises if other countries propose for similar direct grants offered to the project in Nepal, would Nepal be in position to accept all?
However, the major achievement of this JC meeting to Nepal has been the power purchase agreement to develop hydropower and export it to India. As hydropower is the comparatively most advantageous sector for Nepal and it is the only commodity Nepal can sell to fulfill its dreams of earning hydro dollars. Power experts in Nepal say that if Nepal can supply 10,000 electricity regularly to India, it can earn up to 9 trillion rupees annually, which would give much relief to Nepal’s seriously sick economy. According to an estimation, to export 10,000 megawatts of electricity, Nepal’s production capacity must reach a minimum 25,000 megawatts.
Being a least developed country with never ending instability and policy failures, it would be impractical to think about bringing reforms in all crumbling sectors of the Nepalese economy. And
Nepal’s long experience has demonstrated that it can not compete with its neighbors, India and China in production and trade in goods and services at competitive prices, especially the agricultural and manufacturing items. Therefore, the power trade agreement with India seems to be supportive to grow the Nepalese economy. It would have a positive sign for the economy and will ensure an export route for electricity produced in Nepal. Moreover, it could boost import substitution and export promotions by lessening trade deficit gaps.
The power agreement has been done in such a situation, when there has been widespread concerns over the Nepalese economy not functioning properly to support national growth and development. The average annual growth of the economy has been below 5 percent with continued shrinking in the output of the agriculture and the manufacturing sectors. As a result of rising unemployment millions of Nepalese are working in Gulf countries and Malaysia and the economy has been survived by the remittances sent by these workforce working abroad. Trade deficit is excessively widening every year with unstoppable rising imports and squeezing exports. In the similar way, the financial institutions have been surrounded by limited big houses and they move up and down based on their dynamisms. The commodity and stock markets are not functioning satisfactorily. Moreover, the revenue collection has a trend of below the target and the government has failed to increase capital expenditures . Additionally, the development of infrastructure projects to support the economic activities are in the stages of pity with no satisfactory progress, only public debts are piling up at alarming scale. The country is not receiving foreign direct investment at a satisfactory level.
Besides all these concerns and glimpses of the economy, some sectors of comparative advantages are showing some sort of stability and upward trends in recent years in Nepal, such as hydropower and tourism. After fulfilling the internal demands of electricity by ending load sheddings, last year Nepal exported Rs 15 billion of electricity to India. As hydropower, the engine of growth for the Nepalese economy of Nepal has been moving at snail’s pace with limited power production due to internal and external difficulties , now it is supposed to be on the right track after India realized the need to import electricity from Nepal.
After hydropower, the next comparative advantageous sector for the Nepalese economy is the tourism sector which is experiencing a favorable climate as it accomplished the target of 1 million arrival of international tourists last year. Nepal’s comparative advantage in nature-based tourism lies in its network of protected areas. And developing a high-value tourism offering, alongside infrastructure development on a war footing level can only enhance development benefits from this sector.
Although Indian tourists stand at the highest numbers to visit Nepal, it is somehow blocking and hindering further growth of Nepal’s tourism Industry by not allowing Nepal’s flights from newly constructed Gautam Buddha and Pokhara International Airport by not providing western air routes to Nepal citing Chinese investment and contractors in these airports.
To ease the flights from these airports, Nepal asked India to provide an additional air entry route during the Joint Commission (JC) meeting by proposing a new air route for third-country airlines to enter Nepal through Bhairahawa, Nepalgunj, and Mahendranagar. Along with air routes, Nepal again asked India’s approval to operate direct flights by Nepali airlines from Gautam Buddha and Pokhara International Airports to various cities in India, which has big meaning for the tourism development of Nepal, however, this time too there has been no concrete outcome from the meeting on offering new air routes to Nepal by India and flights by Nepali airlines to different Indian cities from Nepal’s newly built airports, which are crucial for Nepal’s tourism industry to grow more.
Anyway, people in Nepal have mixed reactions concerning the electricity purchase agreement with India. As there is high demand for renewable energy in India, and Nepal’s electricity export could give a big relief to it after India opened its door, enabling Nepal to gain from exporting electricity there in considerable quantities. However, the people in Nepal also have also a concern that this agreement should not be like the pathetic uncertain fate of the Pancheshwar project, whose DPR has not been finalized even after three decades of deliberations between two countries. Therefore they are in a state of confusion whether the power purchase agreement with India would be a silver lining in clouds of economic concern of Nepal or it would push Nepal into more complexities? However many experts opine that India executed hydro projects in Nepal are of high significance for both Nepal and India if executed in stipulated timeline.